Meltdown 101: How Layoffs Affect Retirement Plans

A: Your 401(k) is protected even if your company goes out of business.

Government regulations require 401(k) funds to be held in a trust separate from employer accounts and from the companies that manage 401(k) plans. The trust funds are overseen by investment managers, and they carry insurance designed to help protect a company from a fraudulent loss due to embezzlement or other misconduct.

As with a layoff, the money may be distributed either as a check or rolled over into an IRA. If you’re not yet vested, promised employer contributions may also be forfeited under a bankruptcy.

Some of your 401(k) might be at risk, though, if your company’s matching contributions are in the company’s own stock — those shares become worthless if the company goes bankrupt.

(This version CORRECTS to 25 from 26 number of workers in graf 24. Minor edits. Meltdown 101 is a daily series of Q&A’s explaining the financial crisis. Moving on general news and financial services.)